Educational Articles

Japan Earthquake Halts Auto Production

Jason A. Smith
| March 14, 2011

Toyota Motor (TM), the world's largest car manufacturer, and its island-nation brethren, Nissan Motor (NSANY) and Honda Motor (HMC), face sizable production disruptions following the devastating earthquake and tsunami that rocked Japan. The global leader in auto output has shut the doors on numerous plants in its home country, as supply-chain interruptions loom and the unstable nuclear climate has led to significant power issues. As the threat of a meltdown persists at a nuclear plant a little over 100 miles outside of Tokyo, the nation's electric utility has scheduled rolling blackouts in an effort to conserve power. As a result, the auto makers have closed their facilities and have halted production for the next few days.

The earthquake, itself, did not seem to inflict too much damage, relatively speaking, to the facilities located in the areas hardest hit. However, amid Japan's current fragile state and the ongoing power losses, Toyota has temporarily closed a dozen plants through March 16th. Nissan, meanwhile, will also keep the lights off in four facilities through the 16th, with two other locations on hold until the 18th. Honda's stoppage will last a few days longer, staying closed until the 20th. The total output lost for Toyota and Honda, the nation's first- and third-largest manufacturers, may top 40,000 and 16,600 vehicles, according to the respective companies. In addition, Honda continues to have difficulty reaching some of its suppliers, having only been in contact with about half of them as of its last statement. Nissan, Japan's second-largest producer, did not provide an estimate as to the impact.

Estimates currently suggest that such disruptions will cut six billion yen ($70-plus million USD) a day off of Toyota's profits, with Nissan and Honda each losing out on roughly two billion yen on a daily basis.

The auto makers are likely to be one of the most prominent of the production stories coming out of Japan, along with electronics names such as Sony Corporation (SNE) and Toshiba Corporation, which have also shuttered plants.

The production cutbacks, although painful, are necessary actions given the significant blow the nation's infrastructure has absorbed in such a short time. Naturally, shares of all three auto makers fell sharply on the news. Over the long haul, however, the trio will probably not lose too much momentum in the global car market. This setback would seemingly allow General Motors (GM) to gain a little ground in its efforts to reclaim its position as the world's leading auto maker (in terms of volume). Still, we think Toyota's title is safe for now.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.